Professional Documents
Culture Documents
Ecommerce Payment System
Ecommerce Payment System
Systems
.
Topics
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Internet Fraud Complaints
Reported to the IFCC (2004)
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Online Credit Card Purchases are
Risky for the Merchant
• Many security procedures that credit card companies
rely on are not applicable in online environment (CNP).
• Merchant pays when goods are not delivered, order is
disputed or in cases of credit card fraud.
• Percentage of Internet transactions charged back to
online merchants much higher than for traditional
retailers (3-10% compared to ½-1%)
• To protect selves, merchants can:
Refuse to process overseas purchases
Insist that credit card and shipping address match
Require users to input 3-digit security code printed on back of
card
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Customer and Merchant Views
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E-Commerce Transaction
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Points of Vulnerability
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E-Commerce Availability
• Digital Divide: Some groups don’t have same
access to computers and Internet that others do
• Digital “have nots” include:
– Households with incomes below $35,000
– Those without college educations
– People living in rural areas
– African-Americans and Hispanics
– Seniors over 65
– Disabled
• Most recent Department of Commerce study --
most of above groups gaining access to
computers and Internet due to falling computer
prices and free or low cost ISPs 8
Traditional Payment Systems
• Cash
• Checking Transfer
• Credit Card
• Stored Value
• Accumulating Balance
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Cash
• Legal tender defined by a national authority to
represent value
• Most common form of payment in terms of number of
transactions
• Instantly convertible into other forms of value without
intermediation of any kind
• Portable, requires no authentication, and provides
instant purchasing power
• “Free” (no transaction fee), anonymous, low cognitive
demands
• Limitations: easily stolen, limited to smaller transaction,
does not provide any float
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Checking Transfer
• Funds transferred directly via a signed draft or check
from a consumer’s checking account to a merchant or
other individual
• Most common form of payment in terms of amount
spend
• Can be used for both small and large transactions
• Some float
• Not anonymous, require third-party intervention (banks)
• Introduce security risks for merchants (forgeries, stopped
payments), so authentication typically required
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Credit Card
• Represents an account that extends credit to
consumers, permitting consumers to purchase
items while deferring payment, and allows
consumers to make payments to multiple vendors
at one time
• Credit card associations – Nonprofit associations
(Visa, MasterCard) set standards for issuing banks
• Issuing banks – Issue cards and process
transactions
• Processing centers (clearinghouses) – Handle
verification of accounts and balances
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Stored Value Accounts
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Most Common by Number of
Transactions
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Most Common by Dollar Amount
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Payment Systems Characteristics
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Online Payment Systems
• Credit cards are dominant form of online
payment, accounting for around 80% of
online payments in 2002
• New forms of electronic payment include:
Digital cash
Online stored value systems
Digital accumulating balance payment
systems
Digital credit accounts
Digital checking
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Actual and Preferred
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Online Credit Card Use
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Problems with Online CC Use
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Other Online Payment Systems
Digital Wallets
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Digital Wallets
• Concept of digital wallet relevant to many of the
new digital payment systems.
• Seeks to emulate the functionality of traditional
wallet.
• Most important functions:
Authenticate consumer through use of digital
certificates or other encryption methods
Store and transfer value
Secure payment process from consumer to merchant
• Two major categories:
Client-based digital wallets – Gator.com, MasterCard
Wallet
Server-based digital wallets – MSN Wallet
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Digital Cash
• One of the first forms of alternative payment
systems
• Not really “cash” – rather, form of value
storage and value exchange that have limited
convertibility into other forms of value, and
require intermediaries to convert.
• Many of early examples have disappeared;
concepts survive as part of P2P payment
systems.
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Early Digital Cash
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PayPal
• One of e-commerce’s major success stories:
– Went public in 2002; acquired by eBay October 2002 for $1.5
billion
• A “peer-to-peer” payment system using email.
• Fills a niche that credit card companies avoided –
individuals and small merchants
• Piggybacks on existing credit card and checking payment
systems
• Weakness: suffers from relatively high levels of fraud
• PayPal has more than 35 million account members and
is available to users in 38 countries around the world
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Online Stored Value Accounts
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Ecount.com
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Digital Credit Card
• Credit account for online shopping.
• Focus specifically on making use of credit
cards safer and more convenient for online
merchants and consumers.
• Example: eCharge and CyberCash
(Verisign 2002)
• Customer has credit account but no
physical card.
• May use one-time account number.
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Digital Checking
• Takes advantage of large, existing
infrastructure for check processing when used
as online shopping payment tool.
• Examples: eCheck, Achex (MoneyZap)
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Digital Checking: ECheck
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B2B Payment Systems